Fair Housing Laws: What Landlords Need to Know

The Fair Housing Act is a federal law prohibiting housing discrimination. Passed in 1968, fair housing laws protect individuals from experiencing discrimination in the buying, renting, selling, and financing property. The Fair Housing Act is technically part of a larger legislation, the Civil Rights Act of 1968. 

Although the Civil Rights Act was first signed into law in 1964, housing discrimination towards people of color persisted well into the late 60’s and beyond. People of color were often redlined, denying them the ability to purchase or build properties in desirable communities.

The Civil Rights Act of 1968 was meant to strengthen laws passed in 1964, specifically concerning housing discrimination. The Federal Fair Housing Act applies to essentially everyone involved in the real estate business, including real estate companies, home insurance companies, lending institutions, mortgage institutions, developers, landlords, brokers, and agents.

Over the years, the Fair Housing Act has expanded to prevent housing discrimination from several protected classes. Protected classes previously referred to a person’s race, skin color, religion, sex, and national origin, but they now include additional protections for gender, single parents, and people with disabilities. 

Understanding federal fair housing laws

Given that the Federal Fair Housing Act is over 50 years old and multiple amendments have been made since its introduction, real estate investors need to understand how the Fair Housing Act is applied. 

The Fair Housing Act allows defendants to file a fair housing complaint directly with the Department of Housing and Urban Development (HUD). Unfortunately, housing discrimination persists and is often difficult to prove. Winning a case in court requires proper documentation, an experienced lawyer, and some patience. 

Tenants and landlords can find additional information about what legally classifies as housing discrimination on the HUD website and how to move forward should the case be brought to court. 

Note that state and local regulators are allowed to expand on fair housing laws, which means that more restrictions may apply depending on where your property is. For example, in New York State, a landlord or a mortgage lender cannot inquire about a person's criminal record. And New York City explicitly prohibits discrimination in housing based on immigration status, occupation, ethnic hairstyles, and other cultural attributes.

What qualifies as a fair housing complaint?

There are numerous situations in which a prospective tenant or homebuyer may feel like the Federal Fair Housing Act is being violated. Here are four scenarios that landlords, agents, mortgage lenders, and developers should be aware of to avoid discriminating against protected classes.

1. Withholding availability

In highly competitive rental markets such as Miami, Grand Rapids, and Orlando, proving a landlord withholds availability from a tenant based on their protected class can be challenging. This is because apartments in these cities spend just a few days on the market before they are occupied. If a landlord lists a unit on the 1st, it will likely be occupied as early as the 15th.

However, if a landlord is caught telling one prospective tenant that the apartment is available and another prospective tenant of a different race that the apartment is not available, this could be considered a violation of fair housing laws, this is especially true if the apartment ends up being leased after the tenant of color was told that it was already rented. 

2. Refusing to show

Instructing a real estate agent to show a home for sale exclusively to a specific group of people could easily get both the seller and agent in trouble. Refusing to show a home to a protected class directly violates the Fair Housing Act. The only way a seller can get around this is if they choose to list their home privately as a pocket listing. 

A pocket listing allows sellers and agents to promote a home sale to a curated list of individuals. However, a pocket listing has the disadvantage of not being listed on the open market, which could negatively impact your earnings potential. Pocket listings are available to all sellers but are more common among high-net-worth individuals because of the privacy they provide. 

Agents can also violate fair housing laws by suggesting a buyer look in a different neighborhood for housing based only on their race, religion, or other protected class. This can get tricky, but unless a buyer explicitly mentions that they want to see a property in a certain kind of community, agents should be wary of redirecting them there, as this could be an unconscious bias at play.

3. Unfair interest rates or loan terms

This scenario applies to mortgage lenders and banks more than it does to landlords or agents, but it can still affect the sale of a home if the prospective buyer becomes aware of it during the closing process. 

If prospective buyer realizes that their mortgage loan documents come with absorbently high-interest rates or unfair loan terms, they could easily pull out of the sale, claiming a violation of fair housing laws.

An example of this would be a mortgage lender charging higher interest rates for home loans in predominantly Latino neighborhoods than in predominantly white neighborhoods. Another scenario would be a bank suggesting a loan with unfavorable terms to a single parent based on their familial status. In both instances, the Fair Housing Act is being violated.

4. Inadequate building access

Although further removed from the rental and buying process, builders and developers should know how the Fair Housing Act applies to them. If a recently built condominium doesn't comply with accessibility requirements, developers could be held responsible for not providing fair housing access to individuals with disabilities. Fair housing laws vary by state and local municipalities, so it's wise to check local housing laws before starting construction on any new developments. 

How the Fair Housing Act affects real estate investors

What types of housing are exempt?

The Fair Housing Act covers most types of housing — and for this reason, it’s safe to assume that fair housing laws apply to your real estate investments. However, HUD notes that in “very limited circumstances,” the Fair Housing Act exempts the following types of housing:

• An owner-occupied building with four units or less
• Single-family homes sold or rented by the owner without the use of an agent
• Housing operated by religious organizations that limit occupancy to community members

What is considered housing discrimination in the sale and rental of housing?

The Fair Housing Act prohibits turning away a tenant or buyer based on race, color, religion, sex, gender identity, gender expression, sexual orientation, disability, familial status, marriage status, national origin, and/or immigration status. 

The HUD's website has a comprehensive list of what is illegal. Here are a few violations of fair housing laws that may not be as obvious:

• Inconsistent negotiation terms or provision of housing facilities between protected classes and non-protected classes
• Intentionally making housing unavailable or unattractive 
• Falsely claiming that housing is unavailable for inspection
• Failure to provide reasonable accommodations or perform necessary repairs in a timely manner
• Persuading homeowners to sell their homes because a particular protected class is about to move into the neighborhood (aka, blockbusting)

What are your responsibilities as a seller or landlord?

As a seller or landlord, your responsibility is to provide equal housing opportunity and fair buying or rental access to any serious buyer or tenant interested in your property. While you have the right as a seller, landlord, or developer to receive a fair return on your investment, you cannot do so at the expense of fair housing opportunities for those interested.

Applying fair housing laws to real estate investing

Understanding fair housing laws might seem challenging at first glance, but it's important for everyone involved in real estate.

Whether you're a landlord, an agent, or a mortgage lender, ensuring you treat everyone fairly is morally right and legally required. It's all about creating a level playing field for everyone looking to rent or buy a property.

Keeping updated on local and federal laws related to fair housing is essential. By doing so, you're avoiding potential legal issues and promoting a welcoming and inclusive environment for all prospective tenants and buyers. Ultimately, a commitment to fair housing makes good business sense.

Fair Housing Act FAQs

What are the most common fair housing violations?

Common fair housing violations under the Fair Housing Act and related state laws include:

1. Discrimination based on race, color, national origin, religion, sex, familial status, or disability.
2. Steering specific groups to or away from certain neighborhoods.
3. Unequal mortgage lending terms by lending institutions.
4. Sexual harassment in housing scenarios.
5. Failing to provide reasonable accommodations for disabilities.
6. Discrimination based on gender identity or sexual orientation in regions where local laws protect these rights.
7. Retaliation against those exercising their fair housing rights.

Knowing that state and local laws might offer additional protections is vital.

What are the 7 personal characteristics that are protected by the Fair Housing Act?

The Fair Housing Act protects individuals from housing discrimination based on seven personal characteristics. They are:

Race, color, national origin, religion, sex (which may encompass gender identity and sexual orientation in areas with specific state and local laws), familial status (such as having children under 18), and disability

These characteristics define the protected class groups under the Act, ensuring equal opportunity and prohibiting discriminatory practices in housing.

What was the problem with the Fair Housing Act of 1968?

The Fair Housing Act of 1968 was groundbreaking in its attempt to address housing discrimination. However, several issues surrounded it:

1. Enforcement challenges: Initially, the federal government lacked strong enforcement mechanisms. While the Act prohibited discrimination, it relied on the justice department to file suits on behalf of complainants, making proactive enforcement difficult.
2. Persisting discrimination: Despite the Act, practices like redlining, where people of color were denied housing in specific neighborhoods, continued. Discriminatory practices by real estate companies and lending institutions persisted under subtle guises.
3. Narrow protections: The original Act covered discrimination based on race, color, national origin, and religion. Over time, the realization grew that protections needed to be expanded to include other categories like disability, gender, and familial status.
4. Ambiguities in the law: The vagueness in some of the Act's provisions led to varied interpretations, creating confusion around terms like "reasonable accommodations" for individuals with disabilities.
5. Local variances: State and local laws sometimes offered additional protections or had different enforcement mechanisms, leading to inconsistencies in how fair housing laws were applied across the U.S.

Despite these challenges, the Act was a significant step forward in the fight against housing discrimination, and subsequent amendments and stronger enforcement mechanisms have addressed many of its initial shortcomings.